Posted by Innovative Risk-Driven Contract Pricing Strategy
From the Journal of Cost Analysis and Parametrics: Volume 12 | Issue 1 | January 2025
Downloadable File: JCAPv12i1-InnovativeRiskDrivenContractPricing-Flynn
Abstract: Effective contract pricing strategy helps enable the achievement of best value-for-money outcomes in defense procurement. But any strategy, to be effective, must align with exigencies of the development of production effort. There’s no one-size-fits-all. More specifically, selecting a contract type, such as cost-plus or fixed price; a package of incentives (such as event- or calendar-driven); and share lines (above and below target) that are appropriate for a contract requires careful consideration, measurement and assessment of risk factors and uncertainties. These include:
• Requirements Stability: Degree of firmness and completeness.
• Market Forces: Degree of competition.
• Technology Maturity. Degree to which the platform and systems push the state of the art and are technically feasible.
• Contractor Readiness: Contractor experience with the design and build of the same or similar systems.
• Price Validation: Extent to which a contract’s target cost and price have been estimated independently, outside the influence of the project office or contractor.
• Schedule. Likelihood of failing to meet schedule plans and the effect of that failure.
This paper presents a scoring framework that quantifies the influence of these factors and, thus, provides a numerical basis for the determination of recommended contract geometry for upcoming procurements.
Authors: Brian Flynn supports national security efforts at Technomics’ Arlington, Virginia, headquarters. He has a deep understanding of and strong working relationships with many of the cost and operations research organizations in the U.S. DoD and the NATO Alliance. His areas of expertise include capability portfolio analysis and AoAs, weapon system and software cost estimating – including the cloud, EVM, econometric modeling, and corporate financial health. Dr. Flynn has undying pride in his service as a Marine.
Peter Braxton is a Subject Matter Expert and Employee Owner at Technomics, Inc. He has over 20 years of experience performing cost and risk analysis and delivering associated training for a broad spectrum of federal government clients. The inaugural VP for Professional Development and a multiple ICEAA Educator of the Year winner, he has shown a long-standing commitment to knowledge sharing within the community. He holds an AB in Mathematics from Princeton and an MS in Operations Research from the College of William and Mary. He is a semi-retired game show contestant and avid cruciverbalist.
Robert. Nehring is a project manager for Technomics, where he has developed many tools, data visualizations, databases, and cost estimates for programs throughout DoD and DHS. He is an ICEAA-Certified Cost Estimator/Analyst who has won many awards, including the ICEAA 2013 Cost Estimator/Analyst of the Year for Technical Achievement and Best Conference Paper at the 2012 SCEA/ISPA Workshop. He also developed the innovative Galaxy Chart concept and many other models and tools throughout his career.